Second Quarter ("Q2") 2009 Highlights and Developments:    -- Q2 diluted EPS of $0.10   -- Q2 net income increased 120% to $4.8 million   -- Q2 gross margin of 57.9% compared to 50.0% in Q2 of 2008   -- Participated in the April 2009 61st PHARMCHINA in Zhengzhou, China, one      of the largest exhibitions in Chinese pharmaceutical industry with a      history of over 30 years, and entered sales agreements with five new      distributors which the Company believes may increase the Company's      market share   -- Exhibited at the June 26-28 2009 International Conference for      Bioeconomy/the 44th New Drugs Expo and increased its wholesale      portfolio with three new drugs   -- Started and completed building foundation of Inner Mongolia new      facility, which the Company believes accounts for approximately 5% of      the total build-out   -- Awarded with Good Supply Practices Certification   -- Two investors of preferred shares from the 2008 private placement      financing opted to convert 172,413 shares of preferred stock to 172,413      shares of common stock of the Company under Rule 144    

Revenues for the second quarter of 2009 decreased 30% to $13.6 million from $19.4 million of the same period of 2008. Wholesale revenues, one of the revenue segments, accounting for 78% of total revenues, decreased 25% due to the Company's 2009 product pricing policy(1). Average unit wholesale selling price decreased 43% in the second quarter of 2009 over the same period of 2008, while 26% increase in wholesale quantities over the second quarter 2008. Retail revenues accounting for 20% of total revenues decreased 24% due to weak consumer demand for non-essential drugs.

Gross margins for the second quarter of 2009 increased to 57.9% as compared to 50.0% in the second quarter of 2008. Dr. Zhongyi Liu, Chairman and CEO of Lotus commented, "We are very pleased with our growth in sales quantities and gross margins of this quarter. Our pricing policy for 2009 has been adjusted accordingly due to the expected inflation contraction on the wholesale level nationally. We have been able to reduce the cost of sales mainly because Active Pharmaceutical Ingredient ("API") and essential medicine prices have dropped since the onset of economic slowdown."

Total operating expenses for the second quarter 2009 were $2.6 million, a 63% decrease from the second quarter of 2008. The decrease resulted from the decrease of selling expenses in relation to our drugs that have established certain market shares, which was due to the profit margins we have given away to our agents who in turn are incentivized to sell our established drugs at competitive prices.

Dr. Liu commented, "We are very pleased to obtain the approval from the Beijing Land Planning Bureau for permitting us to build a new office building on our current production base which was previously industrial-use-only land in Beijing. This means that we can finally bring all of our operational units such as administration, sales, R&D and production into a single office building. This is another important step we made towards improving our operational efficiency."

Net income for the second quarter of 2009 was $4.8 million, or $0.10 per diluted share, compared to $2.2 million, or $0.05 per diluted share, in the second quarter of 2008.

The Company's cash position at the end of the second quarter was $1.8 million, compared to $1.3 million at the end of 2008.

"We actively exhibit at all the important drug expos in China, through which we build strong customer relationships. We continue to fulfill our promise to bring new drugs to the market and to reach out new customers," commented Dr. Zhongyi Liu. "In addition to one new prescription drug, Qingkailing Paotengpian, we are now offering new drugs to our national sales network for the treatment of acute suppurative tonsillitis, acute upper respiratory infection, pneumonia and high fever. We are also selling two new OTC drugs: (i) NINGXIN Yishen Oral Liquid, which improves immune system and sleep, and reduces fatigue, and (ii) Shuanghuanglian Oral Liquid, which is used to treat influenza symptoms. For the three new drugs we offered, we provided promotions with introduction meetings for customers and agents in Beijing, Anhui and Inner Mongolia. Currently, we are selling a total of 15 types of drugs through our wholesale channels nationwide."

Six-Month Results

For the six-month period ended June 30, 2009, total revenues were $25.5 million, a decrease of 18.1% from $31.1 million in the same period last year. Gross profit was $14.5 million, up 6.6% from gross profit of $13.6 million for the six months of 2008. Gross margin was 57.1%, compared to 43.8% for the first six months of 2008. Operating income was $9.5 million, compared to $4.3 million for the first six months of fiscal 2008.

Net income for the period was $8.4 million, an increase of 163% from $3.2 million in the same period last year. Earnings per share (diluted) for the first half of 2009 was $0.17, compared to $0.07 in the first half of 2008.

Improved cash flows from operating activities was $16.3 million, compared to $4.7 million in the first six months of 2008.

2009 Outlook

"We are very pleased with our bottom line growth and gross margin for the first six months of 2009. We believe we will have consistent growth for the rest of the year mainly because the majority of drugs we sell to our national network are covered under the National Health Insurance Policy, and our continuous efforts to improve operational efficiency," said Mr. Liu. "While we are making progress in expanding our production capacity in Inner Mongolia, we believe we are on track to achieve the earnings guidance we provided previously."

   (1) The 2008 net revenues referenced above have been adjusted for       correction.